New legislation provides up to $20K in tax-free military retirement income

(FOX40.COM) — Assemblywoman Dr. Jasmeet Baines announced groundbreaking tax relief for veterans as part of the 2025-26 State Budget.
• Video above: Branches of the United States military

Baines stated that the reform cuts income taxes up to $20,000 annually for veterans receiving military retirement pay.

“Despite having the nation’s largest veteran population, the cost of living in California is making it impossible for native Californians to live here after they leave service,” said Dr. Bains. “I do not believe California should balance our checkbook on the backs of veterans.”

The new Military Retirement Exclusion represents one of the most significant pro-veteran policy changes in California’s recent history, Baines stated. The tax cut applies to individuals with an adjusted gross income of up to $125,000, surviving spouses with the same income threshold, and married couples who have filed jointly, combining their incomes of up to $250,000.

According to Baines, this legislation will address a long-standing concern among California’s veteran community to where the high cost of living combined with state taxation of military retirement benefits has made it hard for a lot of veterans to stay in California after their service is done.

“This tax cut recognizes the unique sacrifices made by our veterans and their families and ensures that the 1.8 million veterans who call California home can afford to live here after their years of dedicated service,” said Dr. Bains.

The Military Retirement Exclusion is going to be effective for taxable years starting after January 1 and will remain in effect through December 31, 2029, with the option to be extended in future budget years, according to Baines.

Officials stated that veterans and qualifying military families are going to be able to claim this exclusion when filing their 2025 California state income tax returns.